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tv   Bloomberg Markets European Open  Bloomberg  September 28, 2017 2:30am-4:00am EDT

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♪ thursday morning, good morning. welcome to bloomberg markets, cash equities opening shortly. it has been a big open already for the bund market. i am guy johnson in london. matt miller is in berlin. treasuries boosting the dollar and sending small caps a soaring. we will speak to an investor who's biggest short position is the russell 2000. how long will he hold that position.
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hitting the gas. china is requiring a minimum alternative energy output for all car companies by 2019. that is not very far away. we will talk about has a and p.m. w -- tesla and bmw. over thatisagree coin. we will speak to the former coo of skype. michael jackson. matt: take a look at what the equity index futures are doing. big gains across the board after we closed in the green yesterday. and the u.s. gained as well. i have seen the word search used .4 game could be called a surge. i would call it a rise. you see is up on futures .1 of 1% on the stoxx 50. take a look at the bunds. moving in ave been
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tighter range than even the s&p 500. here back up to about .5 of 1% is what you're getting for lending your money to the german government for 10 years. bunds yields coming back up. if you look at it over six months, does not look that impresses. we're not really at the top of the range. so keep that in mind. what else are you saying? a lot of moves because of the trump tax plan? it is the rate of change of bunds that is important. you couldve slowly roll higher in terms of the yields you are getting. if you have a taper tantrum to move that is problematic. .5 of 1%.0 up by the dollar is bid and we are up point two of 1%.
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the aussies off and the canadian is off. the aussie is off as well. let me show you what is happening with iron ore. ore,s the move in iron trade down by 3.2 9%. what is interesting is the relationship between what is happening in the oil sector and the metal sector and that relationship is pretty interesting. kate -- keep an eye on that. let's get a bloomberg first word news update. here's juliette saly. juliette: u.s. president donald trump and republican leaders are projecting unity as they announce a lower weighted tax plan. during a speech in indiana, trump called the framework of revolutionary change that will spur economic growth and higher wages for average workers. president trump: we will dramatically cut the business tax rate so that american companies and american workers foreigno our
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competitors and start winning again. juliette: shinzo abe has dissolved the lower house of parliament ahead of a snap election on october 22. the dissolution of the more powerful of the two chamber parliament comes more than a year before it is required by law. iraqi kurds have voted overwhelmingly in favor of independence as almost 93% of 3.3 million eligible ballots back to statehood. the result risks retaliation from turkey as well as the government and back cap -- and baghdad who pledged to do whatever it takes to prevent secession. and interest rate increase should be considered good news to the u.k. rather than a source of fear. andy haldane said he is among the majority of policymakers who believe the economy is nearing the point where reduction in stimulus might be warranted.
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the boe is marking 10 years of independence from the governor does government. you have to, the founder of playboy magazine has died at the age of 91. he died surrounding by -- surrounded by friends and family. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. thanks for a much for that. after angela merkel's underwhelming performance in sunday's german election, focus has shifted to who will be getting the top job in her new coalition. leavingnce minister is to become president of the lower house of parliament, the number two position in this state enough certain way after the federal president.
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there are lots of other possibilities. let's digest this with the chief strategist at lack rock. it is kind of weird but the chancellor is the third most powerful position in the federal government. you think it is the most important executive position. what does this mean for the finance minister slipping down to the head of the lower house of parliament? guest: it would be a very important position. for the first time there will be six parties represented in the bundestag and the lower ranges represented. all the way through to the right wing and it is the first time we are having all this broad debate in the bundestag. it requires a serious person to run the show and keep everything under control. we can expect some severe
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controversy. it is a an important role for senior enough, experienced enough and respected enough to hold this position. the main question then becomes for markets, who is the next finance minister? -- an investor, lindler do it for you? not interested in the position for himself. the ftp is perceived to be the most business friendly party, the party must interested in economic issues and the party most naturally competent. they believe that themselves. it will be a crucial element, it to keep this drive.
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in case the so-called jamaica coalition does not work, it might be something she may need to give to something else. substantialre is anything , mrs. merkel could offer to bring the spd back to the negotiation table, that could be the finance ministry. strategicfor her a option to keep open for some time. matt: she could bring anyone else in except martin schulz. guy: good morning. guy in london. say the ministry does go to the fdp. what will that mean for peripheral europe? guest: that is a very good and very important question. the market has been looking at this election so far.
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in a very relaxed fashion. this could change if the -- they were going to go to the government. y have been saying they want to be strict on the fiscal compact, they want to be where he rigid on any concessions with france, for example. a european want finance minister and they want greece out of the euro area. we would imagine that this would foruite a stress situation european spreads in the first place. and the worst of all cases if a are rigid on all these topics that could bring the eurocrisis back on. probably [inaudible] surrounding all this. does the trump tax reform policies seem to be causing a few ripples in markets?
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yesterday and into this morning we have seen a spike higher in bund yields. if we were to see that tax policy becoming a reality, what would be the impact for european assets? guest: this would be a very interesting move back because it would be in some sort bring the trump trade back on. we have seen that markets have been very rigid on that, they have been pricing off the trump trade over the course of the year. if there were to be a tax reform which would come as a surprise after all these moves that would bring back a shift toward the more interest in u.s. treasuries are that would lead to interest rates increases in the u.s. in the first place and lead to a steeper u.s. curve than markets have been assuming. that is the most interesting consequence. it would have repercussions for the exchange rate because he would soften the euro. we have seen some of these moves
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since the -- these rumors or this news came up over the course of the past 24 hours. it would strengthen the dollar and soften the euro and buy that, it would change the relative attractiveness of american assets slightly in favor of european assets. matt: does it make sense that european investors would want to get into u.s. equities to take advantage of that, are you optimistic this would happen? guest: you need that optimism to believe in the tax reform to come through and my sense would the looking at it from a european perspective, mr. trump has been quite offensive when it comes to treating his party fellows especially in the congress, paul ryan and other senior people in the congress. when you think about the deal he made with the democrats regarding the debt ceiling and the solution of the agreements issue. his was confrontive on
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part. i'm not sure that the senior people would be willing to support him when it comes to tax reform. matt: just to read back to europe, what do you see as the investment prospect for the union as we prepare for the jamaica coalition, does that slow down the integration that the finance minister had been pushing for? guest: i think so. the coalition building will be complex and many people are focusing on controversies theeen the party and greens, the most crucial bid in this whole thing is that the -- this is the part of this party of mrs. merkel. they are more reluctant to go for european integration. they are rigid on migration and very much opposing any further moves in terms of climate change orientated policies.
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the crucial bid in the coalition building is the csu. while this is underway and it can take months, a few people are expecting the government building to be finished by the end of the year. while this is happening, the further it euro integration process will be held back. matt: which does it hit hardest? guest: probably spreads. that for a while. it will probably keep some of the overseas investors in the americas and asia more reluctant to invest more into europe. we have seen some close coming in after the european risk wide-out after the dutch and french election. this has stalled waiting for the german election result. we have the results and there could be more hesitation. matt: thanks for coming in. the chief investment strategist
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at blackrock. idea what give you an is happening. hit tv and you get this screen and great sidebar and you can access the functionality and charts we're using here as well. and pull them out into your bloomberg and you can ask a question. we will carry on the conversation. we need to talk about what is happening with markets. tax reform seems to be the dominant theme. window dressing taking place, we will talk to mark had more. cudmore. this is bloomberg. ♪
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matt: welcome back to bloomberg markets, the european open as we prepare for a positive equity trade in 13 minutes. let's get the bloomberg business flash with juliette saly. juliette: the uk's civil aviation authority is launching enforcement action against reiner forgive -- failing to give customers accurate information about their flights. the regular dirt ask for meeting with the airline as part of a consultation that will allow seven days and could take legal action for breaching consumer protection laws and necessary. defended hisrg has company after donald trump
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tweeted that facebook was always anti-trump. the social midi does media mogul said he should not have dismissed as crazy the idea that this information on his network changed the election. investigators focused on social media's role in rushes efforts to interfere in the 2016 presidential election. promoteitalia plans to the generation -- the general manager for ceo. it was approved by the remuneration and domination committee. it cements the lineup after being led by three ceos in the past 18 months. novartis is considering a deal advanced accelerator applications. this was drugmaker has about a deal and held talks that come as novartis
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is seeking acquisitions to boost growth. both declined to comment. apple has agreed to terms with bain capital in the private equity firms $18 billion build -- bid for toshiba's chip unit. the iphone maker is part of a concession -- consortium bayne has assembled. ispokesman said the company aiming to conclude the contract as soon as possible while apple did not respond to requests for comment area that is your bloomberg business flash. the dollar strengthened for a fourth day, treasury yields climbing to a two-month high. to an mliv blog, the curve needs to steepen a little bit to get much further. the question is not only if trump can parse a tax plan but if that could provide a sustained boosted to the growth story.
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we will be back to economics. that is the story. cudmore.k to mark guys thinking about the dollar rally? there is a lot of conversations about inflation points and turning points and we talked about this yesterday. the laundry goes on, does it feel different? he has a tax plan that may or may not get through congress. could that mark a shift here? mark: the narrative is careful. not only do we have this great dollar story with the fiscal stimulus and a hawkish fed, there is a euro negative story and a jacket if negative story with politics and emerging markets are suffering. everything seems to be set up for the dollar to rally. there are a couple things to worry about. one is the fact that the tax
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credit may not get through. there is a question of whether the tax plan will be positive for the dollar. the bush tax cuts did not helps the dollar. you have to see whether this will be dollar negative. we are not seeing the curve steepen which shows the market is not living we will get sustained economic growth. that is because the may believe the tax plan may not follow through. we are talking two months and after powerful moves. dollar said to be negative and yen supportive. there are a lot of things going on in the next 36 hours. a tough time to jump on the trend. matt: you favor, you look at currencies more seriously. we had a little bit of a rally yesterday in u.s. equities and even if big tax cuts are dollar negative, we mentioned -- you
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mentioned the reagan cuts, they are definitely stock market positive. mark: absolutely. the overall story remains positive. growth in the world remain strong and we have a lot of liquidity. even if the fed has reduced balance sheet, most other ballots -- a central banks are pumping liquidity -- pumping liquidity into the system. we will see more corrections and i expect the dips will be bought. there are enough risks and just the fact that we're getting this hiring level yield will make it harder for equities. there is no reason to be bearish. see that theart to yield story accelerates quickly, i am not talking about the taper tantrum quickly but if it picks up quickly, that is a problem for the bond market.
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a lot of fun strategies are based on the idea that as the yield go up i could slowly roll my bonds into high-yielding ones and we could wind up in a situation where does not hurt me much. that does not work if this happens fast area the rate of change here looks important. absolutely. that is always the case and markets, the pace we do these directions makes a difference how much pain there is. what we're seeing in global bond markets, it may have been led by treasuries but other bond markets are following. quite a fewto be investors. if we push through much further this could cause serious pain across assets. we will see whether that will spill over into them. that: if you look at bunds, we do not see the moves coming over
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a range. we are up above .5 of 1% but we are not back up to the july highs. have been trading at such a tight range, could this break them out? mark: they are fighting two different themes. the global bond threat and the european political risk premium story. that was the same story, i think those things mean the european euro trade is under pressure and bunds [inaudible] so you're getting that contradiction between the themes which matters for bunds. if treasuries continue to go much higher or treasury yields go higher you will see bunds break out of the range. much, marks very cudmore joining us to talk about everything and there is a lot
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going on in today's market. we did not cover it all. let's talk getting closer to the open of stock trading. one of the stories we are covering is novartis looking to radiopharmacology company. novartis has been looking to make acquisitions. this could be one of the big ones they make. definitely keep your eye on that stock. guy: i have aaa on the screen. spike you can see coming in on that. quite a decent move. let me talk about what we will see later on today. when the market opens in a few minutes time. we have seven stocks going ex dividend. watch out for that one. the other thing is paying attention to ryanair. keep an eye on how it opens. we have had criticism from the
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civil aviation authority that the airline is not providing the necessary information for passengers that canceled the flights. the market open is four minutes away. this is bloomberg. ♪
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guy: welcome back. one minute to go until castrating. looking like the open up in territory by it looked like it will outperform this morning. keep an eye on what is happening in catalonia. absolutely. 1/5 of the spanish economy wants to leave. i have a chart review for you here. this is 5317, a chart we will up throughout the
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program. it shows a goldman sachs basket of stocks. the russell 2000 versus the performance of the s&p. and the idea is if you do get tax reform, it could benefit obviously the high-tech stocks because their bill will be less, but it really will benefit the russell 2000. they have a 3% higher tax rate on average than the s&p, and they have really strong domestic exposure. guy: we will be talking about the russell in more detail in just a moment with our next guest. here is the market open. opening up as anticipated, up, but only just. not exactly a riproaring start. we did see obviously some positive news being priced into the united states yesterday, which largely happened, i have to say, during the european session. it would be priced already, so you are not really seeing that. ontoe seeing us hanging those gains. let us find out what else we need to know. here is manus cranny.
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it is an eye-opening moment. what does that mean for the flow of money, repatriation of dollars? would that really happen? $.92 on the dollar was spent on buybacks and dividends. repatriated 10%. you can borrow at 3.5%. is it really such a moment? financials are bid up 1.4%. or is down by over 5% in china trade up a moment. financials are bid, which takes me to this relationship that aviva pointed out with peter fitzgerald and myself and anna earlier. you brought it to our attention. you look at the boone futures and you see yield, some difficult levels in the bond market. towards theback spike level of .6%? what is the ramification of the steeper yield curve? lockstep.hat almost
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i said almost because they are pretty much in syncopation of european financials, virtually in lockstep. , not bad for curve financials. let me take you to the gilt. this is the december market. down 50 points on the futures. allianz global have made the point that we have a story of top gilts this morning. they are short gilts. old mutual are saying you want to short the gilt market. you want to target 1.5 percent, 1.6%. bit moresee a little volatility according to old mutual. we are at an inflection point, fully valued. this year. end of 1.42 is where we are at the moment. we have added 36 basis points in the past month. do we add more? hikerobability of a rate would ring a bell. 80%. best the old governor does not
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disappoint the market. i am off to digital radio and guy. guy: looking forward to hearing what is going on on radio this morning. i am just looking at securities, trying to get a handle on what is happening here. we will come back to that in just a moment. is ex-dividend, but i will come back to that. i don't think it will be showing up on the score. in terms of the upside, trading higher. these are the stocks on the move from a percentage point of view. change that to an index point of view. financialsome of the . this is dominated by the financials actually. the financials are really gaining at the moment. on the downside, you have got novartis on the acquisition story with aaa. some of the minors are coming off a little bit.
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i need to double check this. i am surprised to see it down as much as it is this morning, trading by 5.43%. we are seeing some weakness. some of the minors showing up with weakness as well. let me go away and find out what is happening with landon. matt? matt: yes, you look into land securities. it was a choppy day as donald taxp formally unveiled his plan. notable outperformance from the small caps with the russell 2000 up almost 2%. our next guest says he is still short the russell. is the move just short covering? joining us now, patrick armstrong, investment managers cio. let us focus on this chart. we showed it earlier today, patrick, 50 317. just a few minutes ago, actually. it shows the russell 2000 is so sensitive to talk of tax cuts. you can see the first red boxes,
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the november 8 election of donald trump, and then the possibility at the end the red circled area blows up the index. why would you be short the index now? patrick: everyone has priced in the tax cuts and i think we have a long way to go. there will be a lot of negotiations. some of them will get through, and i think you're better off playing the banks, the large-cap tech stocks. they rallied, but not to the same extent. the russell 2000, 24 times earnings. the biggest beneficiary of tax cuts because of their high effective tax rate. but that is in the price already. you have to look at second the river it is -- second derivatives. repatriation of capital is likely. andout having offsets spending, it is going to be hard to blow up the budget deficit much wider without a lot of pushback. matt: i know there are some important senators like john
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mccain who want unanimous agreement on this, but you think that is going to hold us back, this tax reform plan? it goesnot think through this year. very low chance. next year, with heavy alterations, you get some of it through. showing he is effective at getting legislation through. everyone wants to support tax cuts. nobody wants to speak out against them because it is not good. you have a lot of budget hawks. anything that blows up the u.s. deficit, you have got to have offsetting measures on the other side. we have not addressed this. we have got the great news about the headline tax cuts, but it is not a full proposal yet. and because of that, very low likelihood that goes through this year anyway. guy: we have another chart here. this is the data on the russell. we have gone from being seriously short to being not very short at all. that is probably the squeeze that has a german us thus far. what would take to get that far?
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patrick: you would have to have real progress on this. is heavy enough that it is not going to blow up the deficits much wider and support that. that is such a small likelihood right now. earnings, 25 times that is a multiple. you have the iex trading at 18 tis earnings. the biggest2000 is beneficiary of this. it is in the price. if there is bad news, you see it. guy: the market is back to neutral. do you get more shorts at this point? patrick: we were selling covered put options. it is very mildly bullish. we have taken those off to essentially increase their shorts into this rally. matt: patrick, do you expect this news to have an effect? we have already seen a little bit of a knock on effect in european stocks, but in the boone trade -- bund trade, what
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other effects do you expect this to have on european assets? patrick: it is good news if you get tax cuts through and the u.s. is the consumer of the world. anything that increases u.s. consumption is good for the global economy, the biggest single driver. that would be positive if it comes through. i am skeptical. i do not think there is any significant impact through the markets reacting very dollar positive in the last few days because of this. if it isnow because of the tax cuts or because we have an administration working on something positive rather than fighting the media or nfl owners, and that may be enough to explain the recent dollar strength because i'm not 100% sure the tax cuts are a strong dollar story. higher fed. that is a strong dollar and maybe that is the derivative aspect of the tax cuts. trade, how doion i play that? do i just look at balance sheets and go they have a ton of money
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offshore and they are going to stops? back, by back is it as straightforward as that? patrick: i think it is the most simple straightforward and the most likely. you can look for opposition targets of these companies as well because maybe if they repatriate the capital, you want to vertically integrate different things like that, that would be the ancillary play on that. that would be beneficiary for the rest of the 2000. matt: we have a lot going on today so we will keep you with us a little bit. armstrong, still to come, kicking it old school. we hear the case for going along bmw whileng long shorting tesla and netflix. this is bloomberg. ♪
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matt: welcome back to "bloomberg markets: european open." i am matt miller in the german capital of berlin alongside guy johnson at our european headquarters in london. we see stocks that are not on a tear this morning. we had a good day yesterday in the u.s. after the trump tax plan was announced in anticipation of that. you see the stoxx 600, the broader european index unchanged, as is the ftse. the dax gaining .2% and the cac little changed.
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not a heck of a lot going on in these index is good laugh get a closer look at the individual stocks stories. nejra cehic for your mid-caps movers. re-ratingte a bit of going on. if you look at this, the u.k. home, this has been upgraded to buy. it is up four point -- 4.6%. atthe downside, i am looking telecommunications. if you open the drop, we saw an 11% drop. this is a wireless tech and services provider, cutting its guidance, and a third-party account firm to perform a review. that has driven the stock lower. the initial losses have moderated somewhat. we are down 5.8 percent. finally, speaking of the rating, looking at talktalk, it basically a double cut from credit suisse here, cut to
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underperform from outperform, and we are down 5% on talktalk stock. guy: thank you very much indeed. long bmw andng disney, going short tesla and netflix. pentagon strong is the with us. walk us through the trade. patrick: the m w, essentially bmw,ame market cap -- essentially the same market cap your the driver of the world moving towards electric cars. and they have told 47,000 cars to the end of june. that is the last number they announced. carsas sold 50,000 plug-in through the end of july. bmw has the distribution, if the structure, marketing. they are going to benefit from all the charging stations. exactly. there is not everything great but they a any means,
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are getting no credit for the electric arm of their business. a are getting great customer reviews. tesla's always consume higher -- always review higher. the company subsidizes you are bmw makes a profit on their cars. as a consumer, by tesla. as a shareholder, by bmw. seven times earnings. 4% of it yield. tesla has no earnings. is pricing tesla and bmw that tesla is going to be like apple and be in a position where they dominate and has no real significant competition or just one other player competing with it. that is not going to have enjoyed governments around the world will let their car manufacturers become obsolete. the m w will not let itself become obsolete. it is always going to be a competitive market. i do not see tesla dominating. that is what the market is saying is going to happen. it will generate future profits. gone too far on tesla
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and given up on bmw. it is not going to disappear. --youyou mentioned mentioned diesel, and i have to a prettyakes great engine. they have like torque. is it possible, patrick, that this concern about diesel kind of blows over a little bit as consumers start to realize diesel do not spit out that much? exactly. it is creating a big valuation discount for the german automotive companies, and some of it is deserved, but it think it is an overreaction. .eople are pricing too much pricing in all the negatives for bmw's. there is a middle ground. bmw is not a worthless company on everything election.
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it should get some of it priced in for the electric. i think it is extremes. guy: i might want to jump in. isn't bmw not here and not apple? patrick: i do not think governments will allow it. there will always be competition, and you will always have apple dominating handsets. it is not strategically important the way autos are. tesla, if it was competing in itself, no other external factors, maybe it would get into that position, but that would not be a certainty of the stocks price. very likely, whereas i think it is a possibility, but not a probability. matt: are there other carmakers, patrick, that you think are going to do as well as bmw in electric's? amean, mercedes is investing ton in battery production and electric car development in the u.s.. obviously, volkswagen is going
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to want to be doing this as well. why bmw over the other german carmakers? patrick: you can make the case for the other carmakers just the same. i think it will remain a very competitive market where you can expect some profits, but not a huge amount of profits. you are not going to get 50% margins that apple is generating. it is not going to happen with the car company. my contention is tesla is price met in because it has no earnings and it is trading at a bigger market cap. you can make the case for mercedes, bmw, volkswagen. any of them, the same. we like bmw because of the earnings, 4% dividend yield. it's exposure around the world, china, america, europe, and a good brand. the case could be made for any of the old-fashioned companies as well. guy: putting attention to the china news with new regulations requiring automakers to effectively by credits if they are producing cars this morning. theeems to be accelerating
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story prty quickly. why is the force strong with disney and not netflix? patrick: netflix is priced at 206 times earnings. guy: amazing. patrick: it is priced as if it will be in a monopolistic position in seven years time. right now, it is the dominant player. it is already there. in seven years time, we do not know what the market will be. i do not think netflix has sustainable barrier of entry that prevents high levels of competition, so it is not going to -- guy: it is going into contact? patrick: it is going into content. guy: they will look like everybody else? patrick: exactly. the 6 billion is so dwarfed by what disney does. netflix is half of disney's market cap. in 2019, disney is coming out with frozen ii, star wars 9, indiana jones, the lion king remake. netflix, "house of cards," great show. they do not have merchandising, theme park.
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the market says disney is worth 16 times earnings, and netflix is worth 200 times earnings. disney is competing with netflix. it is launching its own streaming. it has content. that will give it something of relevance in the future, but these other media companies have that as well, and more. but they are being priced in old-fashioned multiples. hulu is a second player in the tv, secondaming behind netflix. it disney owns 35% of that, too. there is lots of cases where disney moves in on netflix, and i do not netflix will generate something sustainable to dominate this industry, and that is what 200 times earnings implies. matt: i am guessing distribution, the leaders in distribution are netflix, hulu, and itunes. how do you think that picture changes in the future, patrick? patrick: seven years is so far. if you looked at netflix seven years ago, maybe 10 years ago, they were selling dvds by post
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that you return. that was their business model. they adopted and got onto something that makes a lot more sense. i think there will be hyper competition in this space. itunes, everyone will be doing it. it will be so easy to access that netflix will not have the defendable market it has right now because it is very much entrenched. people love the products, content, the ease of getting the programs they like. i think that will be a commodity market that you do not pay 200 times earnings. that is what i worry about with netflix, not that people don't like the content again. ,t is the valuations skyhigh something sustainable that i have issues with. int: some stock picks positioning from patrick manager' iinvestment hope. he will stay with us. we have a lot more to talk about including a hawkish tone from the bank of england's missed. a rate hike is on the card.
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will mark carney's speech -- will it give us any further clues? this is bloomberg. ♪
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guy: welcome back. you are watching the open. an interest rate hike would be a sign the u.k. economy is healing. one perspective is hawkish tone. on that you will conference --
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the carney did to speak at event and we will hear from theresa may. patrick armstrong is still with us. short rates effectively priced in the fact that we are going to get at least one rate hike in the near-term horizon from the bank. if that is not going to happen, what does cardiac is a today? patrick: he has to move the market to make it a question. they have let us to believe it is happening. the vieween of that they would not be hiking. confidence coming out quite strongly. i would think it will be hiking as well. you have got to not just look at the moves, but the relatives. that was giving a nod towards the fed. it is not as restrictive as it may have been otherwise. guy: it is looking to be a product of the global economy and the coming together of global growth rather than anything else.
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were brexit to be a tougher story than it currently looks, how does the u.k. economy fare? the tail risks seem to be growing. a much better economy starting to grow or a seriously damaged economy. patrick: we are short gilts. gilts may be in trouble. matt: you're talking about the appointment? currency moves so much on the economic outlook that if you get the progrowth outlook where things are ok, yields had to move higher because of inflation. on the negative news, you don't get deflation, you get stagflation. import inflation externally and cannot have gilts at 1.4% if you are in the environment. i think that is the purest played to bet against the uncertainty of either extreme. the nightmare scenario for the u.k., which i think is plausible, not probable, that we are moving into a brexit, and we have got a weakening global economic backdrop and labor is coming into power. all of those things would be
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very negative for risk assets in the country, and they are moving right now. it is a possibility. those could happen at the same time. guy: a bit of breaking news. we will bring that to you in just a moment. this is bloomberg. ♪
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his: trump tax plan treasuries, boosts dollar higher, and sends small caps soaring. plus, hitting the gas. china will require a cap and trade auto emissions rule starting from 2019, marking an important step in the government's effort to phase out fossil fuel power vehicles. morgan stanley versus jpmorgan. the ceo's u.s. banking goliath disagree over bitcoin. we will speak with blockchain board member and former ceo of skype, michael jackson. welcome to "bloomberg markets: european open." berlin miller in
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alongside guy johnson and bloomberg's european headquarters in london. guy. bid this morning, leaving the stocks story when it comes to what is happening in europe. european stocks not going very far very fast. you'll taking up. a net benefit to the european banking sector. it is surging quite nicely. on the opposite end of the retailersyou have down, which the market does not like the numbers being generated by that business. let us talk a little bit about what is happening elsewhere as well. land securities has a return of capital. you have breaking news on the .bu dhabi-based airline jim hogan leaving. his strategy pretty much in tatters. look at what is happening with airlines like alitalia. there was an expectation that there could be -- put into the this position. they used to run the airports in
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so maybe, clearly seen as a safe pair of hands. they have not put element reggie -- they had not put him in that position. the aerospacea lines. he worked for bae and then imports in abu dhabi and at the airports. it is a slightly less traditional route into the top job. he is going to be filling that. it will be interesting to see how his strategy differs to jim hogan's matt. -- jim hogan's, matt. back into civilian life. now, let us move over to spain. the catalunya spanish three-year bond spread has widened as the independence referendum draws closer. for investors, it is all about the aftermath, and that may include spain plus biggest regional economy. here, you see the spread in white.
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patrick armstrong, investment investmente are you -- met manager cio with us. how difficult is this fervor hawaii, for spain and for investors, really? patrick: it is not something we are putting in the portfolio. not completely annoying -- ignoring it. guy: is it annoying? [laughter] patrick: it is hard to basically things odds of these happening and the implications. it is not going to happen overnight. the vote itself, we will see what happens. there is no short-term implications we are putting on right now anyway. out: it should be pointed they had previously voted for independence. 80% margin. only 30% of the people went to the polls.
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obviously, spain has had troubles for decades with the country wanting independence as well. federalssible that this government starts to slowly lose its community is one by one? patrick: definitely possible. i do not think it is likely. these sort of referendums have a self-correcting mechanism almost where the squeaky wheel gets the srease and the referendum i asking for independence get something in return. it is an ongoing issue. i do not think it will be resolved. i do not think there is going to be a big event. sort oft one of those risks you some to the peripheral trade right now, it kind of -- it kind of is interesting. oil has moved pretty quickly. small positiona with short call options on an oil up 30%. guy: are you going to focus on it a bit more now? patrick: maybe. it has got some good momentum
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persistence in commodities. it has a very high cost. a lot lower than the second month futures. it has gone into backwardation in brent and u.s. wti maybe on the big differential there. you have oil being worth 10% more in brent versus the bti. that is probably at the extremes now. that is the difference i am thinking. we do not have that position now, but there probably will be some going forward as well. ask about the german news that everyone -- this office, everyone is talking about for the last 24 hours, the position of the finance minister and who will fill it, and what happens when wolfgang schaeuble steps out of it. how important is that for you as an investor? markets seemed to indicate it was important that schaeuble stay in his office. safe pair ofs a hands. people know what to expect with
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him. i have faith in germany that if he steps down, there will be someone in a similar manner to take over. that is not a significant risk. there will be a replacement for something else. guy: just bringing this all together, we talked at the beginning of the show about what is happening in the united states and the skepticism over the u.s.'s ability to generate tax reform and its ability to shake up the economy that way. should i have similar skepticism when it comes to the macron plan and this view that we can make europe come together and enter a new phase of economic prosperity? patrick: i think you should. guy: how does that leave us? patrick: even without that, europe is on a sustainable recovery pathway to read if you look at the pmi's, where things are going, you are on a trajectory much better. the banks do not have the bad debt. the capitalization levels are much better. you're getting wage growth in germany anyway. hopefully, that goes through to
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the periphery. i do not think macron is going to pull out any of his grand ambitions because he is going to be bogged down with the nature of europe. the european economy is much more than it was two years ago and people are naturally more pessimistic and probably rightfully so. people are much more optimistic on the u.s. and you should be questioning the u.s.. guy: patrick, great to see you this morning on bloomberg television. patrick armstrong joining us. he will be joining the daybreak team with matt and i in them and a clock hour. up next, bullish on bitcoin. says theanley's ceo cryptocurrency is more than a fad. is he right? right?e dimon we will discuss that story, next. this is bloomberg. ♪
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guy: 8:40 in london. 3:40 a.m. in new york. let us get a bloomberg first word news update. >> u.s. president donald trump and republican leaders have projected unity as they await a tax plan that would represent a meditative win -- legislative when this year. he said it is a revolutionary change that would create higher wages for workers. pres. trump: under our framework, we would dramatically cut the business tax rate so american companies and american workers can beat our foreign competitors and start winning
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again. kurds have voted overwhelmingly in favor of independence as almost 93%, 3.3 million eligible ballots, backed state hood. retaliation from neighboring turkey as well as baghdad who have pledged to do whatever it takes to prevent succession. the indonesian government has warned the chances of a volcanic bali are on relatively high. people have been evacuated from the island. 10 alternative airports have been set up to accommodate passengers heading to the popular destination. ofh hefner, the founder playboy magazine, has died at age 91 from natural causes surrounded by friends and family at his home, the playboy mansion in los angeles. his wish was to be buried in a crypt he bought that to the crypt of marilyn monroe in los angeles.
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global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. i. --guy. matt: actually, i will pick it up because we are going to talk about that going. james gorman has defended bitcoin, saying it is not a fad. his comments follow remarks from jamie dimon that the cryptocurrency is a fraud and worse than -- he says he has not invested but it will be interesting to see how central banks control the privacy protections provided by digital currency. dimon, his bank, helps clients. board member at blockchain and the technology behind bitcoin. michael, it is interesting. meteoric rise that concerns so many people about
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bitcoin. i have got a five-year chart here on my screen. i cannot believe it is worth $4200. doesn't this look like a bubble? normally, this hockey stick rise in only a five-year period signals the possibility of a massive drop coming. not think that is necessarily true. when we at mangrove got involved with bitcoin in 2013, we were back at that first peak on your chart. you can see a chart, a bubble, right in 2013, and everyone was talking about a bubble and what came after it. we see that being mirrored in the last few months in the same way. i do not see why we should not continue on the up trend. when you look back in a few years, you will see this is another one of those blips. if you want to compare that in 2013, i remember we just crossed over 1000 at christmas. now, we are at almost 5000. does that mean, in for a five
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years, we could be looking at a -- patrick: why not -- michael: why not? there is every chance we could get up there. i really believe that. guy: how are the chinese going to react? how are authorities going to react? the chinese have reacted in some ways, but i wonder how they will carry on. are we going to see more regulation? in some ways, regulation in the long-term is a good thing, because it provided certainty. it changes the nature of the product. michael: absolutely. we are seeing the chinese recently stop this scheme known as ico's where people were raising capital using blockchain technology. they stopped it and they are just having a pause on it. i can imagine that by the end of the year, there will be a regulated exchange in china managing that process. guy: i am curious to get your take on the spirit a lot of the people i seem to talk to about blockchain, about going to particular, and the guys that run their funds based around it,
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pretty young. they have not seen maybe some of the financial turbulence in their working careers that may be some of us with a few more gray hairs have. am i right and does that worry you? michael: obviously, you're right, because they are younger and have not seen these things. is it a worry? i think it is. a lot of the industry we are venture with as a capitalists, we have more experience with industry in general. that is one of the assets we bring into the industry, helping guys who have not seen these trends, these disasters. and those young people have not even had the chance to run businesses at all. aboutwhat do you think the james gorman comments about the importance of the anonymity of the currency? it is really a pseudonymity. we get what he is saying. it does not rely on central banks.
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is that a weakness for bitcoin or a strength for bitcoin? of course, all of the most successful own governments in the world have central banks controlling their currencies. guy: it is a strength and a weakness. everything has an upside and downside. the anonymity is something the regulators are very concerned about. we are seeing all the exchanges doing what you might call proper know your customer and anti-money laundering procedures. there is a number of controls in place now. you cannot run an exchange today without having his controls in place. , michael,t you think it is an important aspect of this currency that you actually have some freedom from governments? you don't have always big brother knowing your every financial move? i mean, isn't that the key benefit of bitcoin? michael: there is some attention
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to that for many people. i would say most people, most members of the public, do not generally worry too much about that. about it idealistically in a libertarian point of view. people on the street don't seem concerned about governments watching what they are doing with their money. they almost think they have a right to do that. there is a large dialogue about whether criminals are doing this with all sorts of weird things. u k, they recently came within indication that they are not using it for this. maybe it is too complicated for criminals. guy: why would governments lose control of one of the key levers? this is a bet i do not understand and one of the major concerns i have. if you are trying to run an economy, and you do not control the money supply, then life becomes significantly more difficult. patrick: i think it does and you -- michael: i think it does then you have to put the size of the economy in context with the rest of the world economy. it is trivial, to some extent. guy: your senses it gets bigger and therefore our time, it'll
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eat into the traditional monetary story and as a result of which, governments, even at the margin, and sometimes it is at the margin that it is important, will no longer control it? then imposing controls along the way, absolutely. whence things began to get significant the regulator i was speaking to said the currency becomes the currency when people start to use it, the people in the street start to use it. i think we are a long way from bitcoin just yet. matt: i have to point out that i winter 2012now, the living on bitcoin for a couple of weeks. it was an experiment. only two weeks. it worked for everything back then. my one thought then, which i think is changing now, is regulators and governments will not allow this currency to succeed. they will crush it. it seems regulators, especially in this sort of western world, are embracing it in a sense. theael, do you feel that u.s. and european regulators at
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least are trying to work with rather than against bitcoin? michael: absolutely my feeling. all of the regulators we speak to in europe are indeed interested in it, working with it. obviously different countries, and different regulators, had different stances on it. the general feeling is they want to learn about it. technically, they want to understand the implications of it. quite as you up in strong position in fact to develop an economy around that. the u.s. maybe are going more against it, the state regulators, the vested interest in the u.s., are a lot more -- are attacking it a lot more because of horizons. europe is more pragmatic with regulation. matt: there are disputes. putting aside the way china deals with its and the u.s., there are disputes internally among the minors that have led to one split. the price action did not really react to that, but we are looking at possibly another split to come.
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is this a growing problem that we continue to have this sort of internal minor rebellion?is that an issue, you think ? michael: yes, to some extent. whenever there is uncertainty around what is going on, it becomes an issue to which technology choice, people are going to adopt a particular variants of bitcoin or the other virtual currency's people are going to be using from day-to-day. that is really important. we are seeing a number of currencies, not just bitcoin. we have seen bitcoin splits, ethereum, another currency gaining traction because of the utility around the currency. and we are going to see more of these as we have seen technologies developed. see that ak back and betmax, where one becomes severe he or. guy: thank you, up next.
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the german finance minister gives up his post to become president of the lower house. what does this move mean for merkel's coalition-building process? we will talk about that next, and as we say, an end of an era. this is bloomberg. ♪
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matt: welcome back to "bloomberg markets: european open." i am matt miller in the german capital of berlin, along with
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trying to form a coalition government, the german chancellor has to find a new finance minister after eight years. wolfgang schaeuble, a veteran of merkel's three previous cabinets, is giving up the post to become the president of the lower house of parliament. for more, the reporter joins us here in the studio. how did this happen? it seems a few days before the election, shortly was set to hold this post, and now, i guess he has just got to be out to use it as a palm to negotiate an -- a pawn to negotiate? they were so clearly getting out of the coalition, so she realized the negotiations with the liberals and the greens will be really difficult and she really needs some kind of leeway. , on thatentially night, martin schulz in the
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so-called elephant realms, basically said "no way. i am not joining a coalition with you. i refuse to be minister thomas you cannot entice me with that." he kind of handed the stp and the greens a lot of leverage with that. guest: that is how it might have looked at. it really was not happy because for really put up the price getting the coalition really high. suddenly, they were left with the option of either going into the coalition for reelection. they are also a bit strapped. it was clear they will take a very tough negotiation line in this coalition talk, and merkel realized this. just to get a bit of the way, she might've thought, you know, "we better get this finance ministry post free to have it as a bargaining post." guy: who is going to be the next finance minister? guest: we all really would like is now, and the sdp
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front running. there are a few names circulating. a hotshot in the party and who has been in the main press conference sitting just next to is chairman of the sdp really in the front on, doing a lot of interviews, including with bloomberg news. so you might position himself as a future finance minister. he has mentioned this in the pre-election time. but there are others. another politician is in the run as well. we do not know. in the end, we don't know theher the sdp will hit for finance minister. it might still be a bargaining position. matt: all right. i know you have a lot to do covering this, deciding -- finding out if it will be some a in the stb. -- sdp.
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thank you for joining us. stay with bloomberg television. up next, it is "surveillance" with tom keene and francine lacqua. are going to bloomberg radio. ♪
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francine: the dollar and treasury yields climb, as largestt trump once the tax cut in american history. pres. trump: we will cut the tax rate so american companies and workers can be our foreign competitors and start winning again. the bank of england marks 20 years of independence. a rate hike should not be seen


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